Why Nestle Is Multinational Corporate Marketing Essay Why Nestle Is Multinational Corporate Marketing Essay Published: Last Edited: 23rd March, 2015 This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. Introduction to MNC (Multinational Corporate) MNC (Multinational corporate) known started from 17th century which traces origin from Dutch East India Company. And this corporate structure more widely functioned in 21th century. According to Stuart Wall, Sonal Minocha and Bronwen Rees (2010), MNC (Multinational corporate) is a company that has headquarters in one country but has operations in other country. MNC had defined by Dunning (1993) MNC are engages in FDI (Foreign Direct Investment) and owns or controls value-adding activities in more than one country. Typically the multinational would not just own value-adding activities, but might buy resources and create goods or services in a variety of countries.

Multinational Corporate in 2007 an estimated 79000 multinational corporate, collectively controlled a total of around 800000 foreign affiliates, employed almost 82million people worldwide and accounted for sales revenue of over $31 trillion, some 11% of world GDP. . (Stuart Wall;SonalMinocha and Bronwen Rees. 2010. pg. 31). Foreign Direct Investment (FDI) is any forms that investor earns interest in corporation which functions outside of the domestic territory of investor. Besides that, foreign direct investment needs a relationship between a parent company and it foreign subsidiary. It is also gives rise for multinational corporate based on their report Economy Watch (2010). What is Globalization? Globalization means businesses transaction around the world. Research (Global Education, 2009) has shown that globalization have many meanings and definitions, but mostly known as the greater movement of people, goods, capital and ideas affected by the increments of the economic integration which in turn is propelled by the increasing trades and investments. It is like moving towards living in a borderless world.

There has always been a sharing of goods, services, knowledge and cultures between people and countries. In recent years, the improvement of technologies and a reduction of barriers mean the speed of exchange is much faster. Globalization provides lots of different types of opportunities and challenges (Global Education, 2009). Why Nestle is Multinational Corporate? Nestle is a multinational corporate since the headquarter is located in Switzerland but operates businesses in the many other countries over the world such as Europe, United State, China, Malaysia, Hong Kong etc. As we know, Nestle is an infant's product. Besides producing infants, Nestle has also produces some other products such as chocolate, yogurt drink, cornflakes, ice-cream etc which can easily found in supermarkets all over the world. Introduction to Nestle In 1860s, a pharmacist named Henri Nestle had succeeded developed a food for babies whom are unable to breastfeed. And his first success was to be able to feed a premature infant who could not tolerate his mother's milk or any of the usual substitutes. (Nestle, 2010) In 1867, he adopted his own coat of arms as a trademark in 1867.

In German Nestle means little nest. The Nestle symbol is universally understood to carry the meaning of nurturing and caring, security, nourishment and family bonding. These attributes are still the guiding legacy for the company Henri Nestlé founded which fulfills the commitment to 'Good Food, Good Life. The Nestlé Coat-of-Arms Sources: Nestle Sdn Bhd 2010 In 1905 Nestlé work together with the Anglo-Swiss Condensed Milk Company, the year after Nestlé added chocolate to its line of foods. The newly formed Nestlé and Anglo-Swiss Milk Company had factories in the Spain, Germany, United States and Britain. Soon, the company had full-scale manufacturing in Australia with warehouses in Hong Kong, Singapore and Bombay. Most production still took place in Europe. (English Tea Store, 2004-2009) At first, Nestle business was mainly based on milk and dietetic foods for children. Then, Nestlé grew and diversified its range of products, through acquisitions and mergers with the already famous brands of that time.

For example, the manufacturing of LACTOGEN began in 1921, and in the same year, a beverage containing wheat flour was marketed under the brand name MILO. In 1938, NESCAFÉ was introduced to the as the first instant coffee. Then, in 1947, Nestlé merged with the MAGGI Company. Currently, Nestle is still having their principles, which to provide the best products throughout the world. As the leading Food, Nutrition, Health and Wellness Company, Nestlé provides the best food for anytime of day and for anytime of your life. Nestlé has grown to become the world's largest food company which offers more than 8500 brands and 10000 products throughout the whole world. With its headquarters in Vevey, Switzerland, Nestlé has more than 456 factories in more than 80 countries and having more than 283,000 employers. (Nestle Products Sdn Bhd , 2010) Actual impact of globalization on Nestle PESTLE analysis which contains of political, economic, social, technology, legal and environment analysis which consist of external environmental.

It is a useful analysis to understanding the situation of a company in an industry. Political analysis The stability of political in a country will be under the consideration by NESTLE to build a plant that can operates NESTLE's factories that considering the country's political stability, good tax incentives as well as its skilled workforce, NESTLE chose Malaysia to be the site of another regional manufacturing centre for NESCAFE (Mr. José Lopez, Executive Vice President, Nestle S.A. responsible for global operations and GLOBE (Nestlé's Global Business Excellence Programmer)). Economic Analysis The important of economic factors will leads to the strength of consumer spending. For example, in recession economy, people might cut of their budget to consume household stuff rather than unnecessary stuff such as chocolate. Americans likes luxury chocolates, a new premium line of cacao which is called Nestle Treasures God had launched in order to cash in on the recession. Social Analysis Even though Nestle as a multinational corporate which operates their business in the other country, but do respect to people's culture and traditional which is a corporate that think global, act local by working hard to integrate itself into the cultures and traditions of the country. For example, Kit-Kat's formula is almost different everywhere.

A Russian Kit-Kat is smaller than a Bulgarian, but less sweet than Germany's Kit-Kat. While in Japan, the strawberry Kit-Kat is all the rage. Technology Analysis As the technology of recently changed rapidly in global, Nestle have attracted people to purchasing their products by using advertising. For example, Kit-Kat have been advertised by attracting youngster or child because it is a sweeten tid-bits. Infants food's advertisement is to attracted housewife to purchase it to given their child a healthy life. Recent research on technology analysis (Nestle Policy and Environmental sustainable) (2008) reports shown that during the manufacturing process, Nestle had using efficient technologies to ensure that there is no wasted energy while producing products. In addition, to control the eliminate emission including the greenhouse gases. Legal Analysis In 1996, Nestle was the first multinational corporate that voluntary for Halal certification for its own food products. Those food products that exported to the other countries were certified as Halal products. As a global food company like Nestle, hygiene is a must. Since Nestle has the Halal certification and hygiene was the procedure which contain in that certificate. Besides that, health and safety were the principle that keeps by Nestle.

While provided employees to minimize risks in their personal lives, Nestle had always emphasize each of their employees about to change the employee's attitudes towards personal safety. Environmental Analysis Nestle always committed to people to produce the best quality to their consumers. Besides that, Nestle also prevented the wasted food by reduced the material's weight and volume, yet supported initiatives of recycle from used packaging. Nestle have also use recycled materials to produce its products. But, Nestle had done a fact that will cause of the lost of the home for orangutan. According to Heidi Marshall (2010), Nestle's product-Kit Kat is a product of environmental destruction. This is because of the material that used in the candy bars and for the other Nestle products as well was comes from a palm oil that get from by destroying Indonesia rainforests. The strategy that used by Nestle to actual impact of globalization are included: Market Penetration Strategy Market penetration strategy is which to refer to increase market share of the current products. A firm using this method by raises their sale revenue without any changing of their existing products. Nestle may try to use the promotion which is buy 1 free 1 for its products.

For example, buy 2 packs of 1kg Milo free a 10 pack of instant Nescafe. A market penetration will also involve the 4ps which is products, price, promotion and place. According to (Stuart Wall; SonalMinocha and Bronwen Rees, 2010), the product in international marketing is the extent to which a standard and differentiated product should be provided. For example, Nestle is using the differentiated products since it produce its products Kit-Kat in different flavor. A Russian Kit-Kat is smaller than a Bulgarian, but less sweet than Germany's Kit-Kat. While in Japan, the strawberry Kit-Kat is all the rage. The international price is related to the account market different between countries, exchange rates, difficulties of voicing and collecting payment across borders, the effects of tariffs and purchase taxes on competitiveness, governmental regulations of the host country and the long term strategic plan of the company in the different markets in which it operates. For the promotion, it is often expressed to attracted people to consume their products and yet to capture a new consumer to purchasing their products. Nestle is always advertise their products thru media ways.

To make sure that people know their products yet to pursuing people to make a purchase on their products. For example, Nestle advertise its products thru the television advertisement. This can make sure that children will attracted by its advertisement while it advertise. A place or distribution it is difficult to control from outside the overseas country itself. A company will solve this problem by its own subsidiary. In addition, if the products are being imported, a multinational company will recruit a local agent to ensure that there is safety, cheapest and quickest way is using. For example, Nestle might recruit a people that located outside of overseas of it country to solve the problem such as a warehouses, the selling markets and etc. SWOT Analysis of Nestle As Dr. Jill Novak, (2009) commented that: Strength Nestle is a global food producer since it located in over 100 countries. It is consistently one of the world's largest producers which with global sales in 2008 topped $101 billion. In addition, Nestle was named one of "America's Most Admired Food Companies" in Fortune magazine.

Furthermore, Nestle provides quality brands and products and line extensions that are well-known, top-selling brands including: Maggi, Haagen Dazs, Kit Kat, Nescafe, CoffeeMate, prepared baby foods, yogurt, foods for infants and many more. Weakness Most of the products have their own weaknesses. For Nestle, it was not as successful as the other country in France. Nestle could not compete against a strong and established brand which is Dannon that entered into France earlier than Nestle which is top selling of health yogurt. Besides that, since 2004, Nestle has been forced to reduce the amount of sugar in their products that may cause of diabetes among American children. In addition, Nestle has been removed the packaging and advertising that false claims of "heart healthy" and "lower cholesterol" which is an order from FDA(Food and Drug Administration) and American Medical Association which is the under fire of the breakfast cereal industry. Opportunities In today, everyone hope and needs to have a healthy life, as a producer like Nestle, it has an opportunities to raise their selling profits with producing health-based products.

Since Nestle was a well-known branded, for sure, it will be easy to attract people to purchase their products. Further, they launched a new premium line of cacao called Nestle Treasures Gold, in order to cash in on the "recession economy" in which consumers cut back on luxury goods, but regularly indulge in candy and chocolate. Americans want luxury chocolates, and high-end chocolate is immune to the recession (so far), because it is an inexpensive indulgence. Threats Even though Nestle was a big producer in the world, but it still has its competitor, such as Hershey's, Cadbury-Schweppes (owned by Pepsi), Kellogg's, Starbucks, , Quaker, Kraft Foods, Danone, , Heinz, Unilevel and many more. Furthermore, any contamination foods supply especially e.coli which causes the recalled of their brand-Toll House cookie dough. Outbreaks were linked to 28 states and the product had to be recalled globally. Nestlé has yet to find out how this happened, and is still investigating (Dr. Jill Novak, (2009).

Potential impacts of globalization on Nestle Nestle corporate have its own potential in globalization since it is a big foods producer in global. Technology In the world of today, technology will be changing rapidly in global. And this will leads a good improvement in all type of products that will be produce around the world. A research and development department will be a part of Nestle from today towards future achievement by gaining profits without wasting the raw material in manufacturing process. Besides that, by using a developed technology may reduce the effects that will occurs greenhouse effect. For example, use of plastics packaging in every single of Nestle products improve to recycled paper packaging, used of plastic bottle in filling the Nestle beverage into tin that can recycle use. On the others side, a case that occurs in India, which is Nestle chocolate, will be melted before its eyes. This is because there are lacks of distribution and the heat temperature in India will make the chocolate melted. By using the technology that can solve this problem that is using the technology to change its chocolate ingredients so that can afford India heat temperature. Environmental As the info below, Nestle's Kit Kats was made from a palm oil that came from by destroying the rainforest in Indonesia. This is cause of the pollution in Indonesia.

To solve this problem, Nestle corporate should consider using the palm oil from the other countries by not destroying the rainforest of the country. On the other side, there is another solution too. That is, refining the vegetables oil that can out inside the ingredient of making chocolate. Social As a food producer in global, Nestle may do some different in their products. Such as, a new flavor of the chocolate could be launch. This is because different country has a different taste towards foods. For Malaysia, a durian can be a part of the ingredient in the making of Kit-Kat. For Korea, a Kim chi flavor Kit-Kat can also create. This is a try for Nestle to attract people by producing different flavor but same products around the world. The strategy that might use by Nestle in the potential impacts on globalization is: Diversification strategy According to Stuart Wall;SonalMinocha and Bronwen Rees diversification strategy involve the company branching out into both new products and new markets. For example, from the info that I mention below, Nestle might create a different flavor of Kit-Kat to attracted new customer.

For Malaysia, Nestle may create a durian flavor Kit-Kat to attracted those customer who are not chocolate lover but is a durian lover to purchase this products. Conclusion On the day Nestle was introduced, it was only food for infants. As time goes, Nestle has grown to be more famous in brand name and focus in widen its product line. Today, Nestle is one of the most famous and successful foods and drinks producer. Furthermore, Nestle had expands to globalization which consist of factories around the world. Besides that, Nestle will always try counter threats and competitor, such as the current products or new product entrants. Therefore, Nestle still has the potential to grow more and continue to be the one of the leader in the market share. The Organization Change – Nestle | Student Simple The Organization Change – Nestle by student simple | Mar 17, 2014 | Uncategorized Nestlé is a multinational packaged food and beverage company founded and headquartered in Vesey, Switzerland. Nestlé Company is the world’s first company to make infant cereal. Henri Nestlé is the chemist who starts to do research on baby food in year 1867.

His products soon became known worldwide after introducing a baby drink, which is his new product. In 1905, Nestlé Company merged with Angle-Swiss Condensed Milk Company and after that Nestlé Company produced milk chocolate. Nestlé has a wide range of products across a number of markets including coffee, bottled water, other beverages, chocolate, ice cream, infant foods, performance and healthcare nutrition, seasonings, frozen and refrigerated foods, confectionery and pet food. Because of its variety production, now Nestlé becomes of the largest food companies in the world, marketing over 8500 brands and 30,000 products. Nestlé has almost 500 factories around the world and employs more than 200,000 employees worldwide. Nestlé operates in nearly 100 countries across 5 continents and the brand is trusted and confident for its customers to consume. Under the leadership of Peter Brabeck- Letmathe, Nestle went through second-order change. According the National Academy for Academic leadership “Second-order change is deciding – or being forced – to do something significantly or fundamentally different from what we have done before.

The process is irreversible: once you begin, it is impossible to return to the way you were doing before. Second- order, discontinuous change is transformational, radical, and fundamentally alters the organization at its core. Second- order change entails not only developing but transforming the nature of the organization. Below I have listed a few examples of this second order change: • Nestlé only sold through sales agents to countries outside of its home market. • Its launch into the American market was initiated when the First World War increased demand for dairy products. Nestlé took this opportunity to establish its presence in the United States by acquiring several existing factories. • In 1974 Nestlé diversified for the first time out-side the food industry in order to promote growth. • It became a major shareholder in the cosmetic giant L’Oreal. • Nestlé later made a second foray outside the food industry with the purchase of Alcon Laboratories Inc., Brabeck- Letmathe emphasizes the need for an incremental approach to change. However, I don’t think he actually follows this process all the time. Even though he says “Why should we manufacture dramatic change? Just for changes sake? To follow some sort of fad with-out logical thinking behind it?

We are very skeptical of any kind of fad.” He initiated a complete overhaul of the executive board, replacing it with 10 new executives. He claims that change is incremental; however he is making a radical change. Change may mean adding on to, and integrating, rather than removing and replacing current practices. What this reminds the managers of change is that they need to assess how carrying out a change will impact upon current practices and the extent to which a change will create ripple effects on practices and routines that they need to retain. So instead of removing the technological policy of the firm, they can try to improve it. Nestle can also downsize their firm. Downsizing is the intentional process of permanently reducing staff numbers in an organization. Since they are unnecessarily big and invested every single sector, they can sell some of their industries and focus on most profitable ones. There are three examples of lessons from the front line that are evident in the Nestlé case. They are: • There is a dramatic pace of change in Nestle. This has to be slowed down. • There is high risk in its investments; the firm has to hedge its risks. • There is a wrong policy in technology.

Care needs to be taken in assuming that types of organizational changes can be neatly categorized as small, adaptive, and incremental compared to those that are large and transformational. Mental frameworks, individual perspectives, the extent to which a change is directly relevant to a person and his or her activities, and the degree to which he or she accepts the need for change Case Study: Nestle's Growth Strategy Home » Management Case Studies » Case Study: Nestle’s Growth Strategy Case Study: Nestle’s Growth Strategy Nestle is one of the oldest of all multinational businesses. The company was founded in Switzerland in 1866 by Heinrich Nestle, who established Nestle to distribute “milk food,” a type of infant food he had invented that was made from powdered milk, baked food, and sugar. From its very early days, the company looked to other countries for growth opportunities, establishing its first foreign offices in London in 1868. In 1905, the company merged with the Anglo-Swiss Condensed Milk, thereby broadening the company’s product line to include both condensed milk and infant formulas.

Forced by Switzer­land’s small size to look outside’ its borders for growth opportunities, Nestle established condensed milk and infant food processing plants in the United States and Britain in the late 19th century and in Australia, South America, Africa, and Asia in the first three decades of the 20th century. In 1929, Nestle moved into the chocolate business when it acquired a Swiss chocolate maker. This was fol­lowed in 1938 by the development of Nestle’s most rev­olutionary product, Nescafe, the world’s first soluble coffee drink. After World War 11, Nestle continued to expand into other areas of the food business, primarily through a series of acquisitions that included Maggi (1947), Cross & Blackwell (1960), Findus (1962), Libby’s (1970), Stouffer’s (1973), Carnation (1985), Rowntree (1988), and Perrier (1992).

By the late 1990s, Nestle had 500 factories in 76 countries and sold its products in a staggering 193 nations-almost every country in the world. In 1998, the company generated sales of close to SWF 72 billion ($51 billion), only 1 percent of which occurred in its home country. Similarly, only 3 percent of its- 210,000 employees were located in Switzerland. Nestle was the world’s biggest maker of infant formula, powdered milk, chocolates, instant coffee, soups, and mineral waters. It was number two in ice cream, breakfast cereals, and pet food. Roughly 38 percent of its food sales were made in Europe, 32 percent in the Americas, and 20 percent in Africa and Asia. Management Structure Nestlé is a decentralized organization . Responsibility for operating decisions is pushed down to local units, which typically enjoy a high degree of autonomy with regard to decisions involving pricing, distribution, marketing, human resources, and so on.

At the same time, the company is organized into seven worldwide strategic business units (SBUs) that have responsibility for high-level strategic decisions and business development. For example, a strategic business unit focuses on coffee and beverages. Another one focuses on confectionery and ice cream. These SBUs engage in overall strategy development, including acquisitions and market entry strategy. In recent years, two-thirds of Nestlé’s growth has come from acquisitions, so this is a critical function. Running in parallel to this structure is a regional organization that divides the world into five major geographical zones, such as Europe, North America and Asia. The regional organizations assist in the overall strategy development process and are responsible for developing regional strategies (an example would be Nestlé’s strategy in the Middle East, which was discussed earlier). Neither the SBU nor regional managers, however, get involved in local operating or strategic decisions on anything other than an exceptional basis. Although Nestlé makes intensive use of local managers to knit its diverse worldwide operations together, the company relies on its “expatriate army.” This consists of about 700 managers who spend the bulk of their careers on foreign assignments , moving from one country to the next.

Selected primarily on the basis of their ability, drive and willingness to live a quasi-nomadic lifestyle, these individuals often work in half-a-dozen nations during their careers. Nestlé also uses management development programs as a strategic tool for creating an esprit de corps among managers. At Rive-Reine, the company’s international training center in Switzerland, the company brings together, managers from around the world, at different stages in their careers, for specially targetted development programs of two to three weeks’ duration. The objective of these programs is to give the managers a better understanding of Nestlé’s culture and strategy, and to give them access to the company’s top management. The research and development operation has a special place within Nestlé, which is not surprising for a company that was established to commercialize innovative food stuffs. The R&D function comprises 18 different groups that operate in 11 countries throughout the world. Nestlé spends approximately 1 percent of its annual sales revenue on R&D and has 3,100 employees dedicated to the function. Around 70 percent of the R&D budget is spent on development initiatives.

These initiatives focus on developing products and processes that fulfill market needs, as identified by the SBUs, in concert with regional and local managers. For example, Nestlé instant noodle products were originally developed by the R&D group in response to the perceived needs of local operating companies through the Asian region. The company also has longer-term development projects that focus on developing new technological platforms, such as non-animal protein sources or agricultural biotechnology products. A Growth Strategy for the 21st Century Despite its undisputed success, Nestlé realized by the early 1990s, that it faced significant challenges in maintaining its growth rate. The large Western European and North American markets were mature. In several countries, population growth had stagnated and in some, there had been a small decline in food consumption. The retail environment in many Western nations had become increasingly challenging and the balance of power was shifting away from the large-scale manufacturers of branded foods and beverages, and toward nationwide supermarket and discount chains. Increasingly, retailers found themselves in the unfamiliar position of playing off against each other – manufacturers of branded foods, thus bargaining down prices. Particularly in Europe, this trend was enhanced by the successful introduction of private-label brands by several of Europe’s leading supermarket chains.

The results included increased price competition in several key segments of the food and beverage market, such as cereals, coffee and soft drinks. At Nestlé, one response has been to look toward emerging markets in Eastern Europe, Asia and Latin America for growth possibilities. The logic is simple and obvious – a combination of economic and population growth, when coupled with the widespread adoption of market-oriented economic policies by the governments of many developing nations, makes for attractive business opportunities. Many of these countries are still relatively poor, but their economies are growing rapidly. For example, if current economic growth forecasts occur, by 2010, there will be 700 million people in China and India that have income levels approaching those of Spain in the mid-1990s. As income levels rise, it is increasingly likely that consumers in these nations will start to substitute branded food products for basic foodstuffs, creating a large market opportunity for companies such as Nestlé. In general, Nestle’s growth strategy had been to enter emerging markets early – before competitors – and build a substantial position by selling basic food items that appeal to the local population base, such as infant formula, condensed milk, noodles and tofu.

By narrowing its initial market focus to just a handful of strategic brands, Nestlé claims it can simplify life, reduce risk, and concentrate its marketing resources and managerial effort on a limited number of key niches. The goal is to build a commanding market position in each of these niches. By pursuing such a strategy, Nestlé has taken as much as 85 percent of the market for instant coffee in Mexico, 66 percent of the market for powdered milk in the Philippines, and 70 percent of the markets for soups in Chile. As income levels rise, the company progressively moves out from these niches, introducing more upscale items, such as mineral water, chocolate, cookies, and prepared foodstuffs. Although the company is known worldwide for several key brands, such as Nescafe, it uses local brands in many markets. The company owns 8,500 brands, but only 750 of them are registered in more than one country, and only 80 are registered in more than 10 countries.

While the company will use the same “global brands” in multiple developed markets, in the developing world it focuses on trying to optimize ingredients and processing technology to local conditions and then using a brand name that resonates locally. Customization rather than globalization is the key to the Nestle’s growth strategy in emerging markets. Executing the Strategy Successful execution of the strategy for developing markets requires a degree of flexibility, an ability to adapt in often unforeseen ways to local conditions, and a long-term perspective that puts building a sustainable business before short-term profitability. In Nigeria, for example, a crumbling road system, aging trucks, and the danger of violence forced the company to re-think its traditional distribution methods. Instead of operating a central warehouse, as is its preference in most nations, the country. For safety reasons, trucks carrying Nestlé goods are allowed to travel only during the day and frequently under-armed guard. Marketing also poses challenges in Nigeria. With little opportunity for typical Western-style advertising on television of billboards, the company hired local singers to go to towns and villages offering a mix of entertainment and product demonstrations. China provides another interesting example of local adaptation and long-term focus.

After 13 years of talks, Nestlé was formally invited into China in 1987, by the Government of Heilongjiang province. Nestlé opened a plant to produce powdered milk and infant formula there in 1990, but quickly realized that the local rail and road infrastructure was inadequate and inhibited the collection of milk and delivery of finished products. Rather than make do with the local infrastructure, Nestlé embarked on an ambitious plan to establish its own distribution network, known as milk roads, between 27 villages in the region and factory collection points, called chilling centres. Farmers brought their milk – often on bicycles or carts – to the centres where it was weighed and analysed. Unlike the government, Nestlé paid the farmers promptly. Suddenly the farmers had an incentive to produce milk and many bought a second cow, increasing the cow population in the district by 3,000 to 9,000 in 18 months. Area managers then organized a delivery system that used dedicated vans to deliver the milk to Nestlé’s factory. Although at first glance this might seem to be a very costly solution, Nestlé calculated that the long-term benefits would be substantial.

Nestlé’s strategy is similar to that undertaken by many European and American companies during the first waves of industrialization in those countries. Companies often had to invest in infrastructure that we now take for granted to get production off the ground. Once the infrastructure was in place, in China, Nestlé’s production took off. In 1990, 316 tons of powdered milk and infant formula were produced. By 1994, output exceeded 10,000 tons and the company decided to triple capacity. Based on this experience, Nestlé decided to build another two powdered milk factories in China and was aiming to generate sales of $700 million by 2000. Nestlé is pursuing a similar long-term bet in the Middle East, an area in which most multinational food companies have little presence. Collectively, the Middle East accounts for only about 2 percent of Nestlé’s worldwide sales and the individual markets are very small. However, Nestlé’s long-term strategy is based on the assumption that regional conflicts will subside and intra-regional trade will expand as trade barriers between countries in the region come down.

Once that happens, Nestlé’s factories in the Middle East should be able to sell throughout the region, thereby realizing scale economies. In anticipation of this development, Nestlé has established a network of factories in five countries, in the hope that each will, someday, supply the entire region with different products. The company, currently makes ice-cream in Dubai, soups and cereals in Saudi Arabia, yogurt and bouillon in Egypt, chocolate in Turkey, and ketchup and instant noodles in Syria. For the present, Nestlé can survive in these markets by using local materials and focusing on local demand. The Syrian factory, for example, relies on products that use tomatoes, a major local agricultural product. Syria also produces wheat, which is the main ingredient in instant noodles. Even if trade barriers don’t come down soon, Nestlé has indicated it will remain committed to the region. By using local inputs and focussing on local consumer needs, it has earned a good rate of return in the region, even though the individual markets are small. Despite its successes in places such as China and parts of the Middle East, not all of Nestlé’s moves have worked out so well.

Like several other Western companies, Nestlé has had its problems in Japan, where a failure to adapt its coffee brand to local conditions meant the loss of a significant market opportunity to another Western company, Coca Cola. For years, Nestlé’s instant coffee brand was the dominant coffee product in Japan. In the 1960s, cold canned coffee (which can be purchased from soda vending machines) started to gain a following in Japan. Nestlé dismissed the product as just a coffee-flavoured drink rather than the real thing and declined to enter the market. Nestlé’s local partner at the time, Kirin Beer, was so incensed at Nestlé’s refusal to enter the canned coffee market that it broke off its relationship with the company. In contrast, Coca Cola entered the market with Georgia, a product developed specifically for this segment of the Japanese market. By leveraging its existing distribution channel, Coca Cola captured a 40 percent share of the $4 billion a year, market for canned coffee in Japan. Nestlé, which failed to enter the market until the 1980s, has only a 4 percent share.

While Nestlé has built businesses from the ground up, in many emerging markets, such as Nigeria and China, in others it will purchase local companies if suitable candidates can be found. The company pursued such a strategy in Poland, which it entered in 1994, by purchasing Goplana, the country’s second largest chocolate manufacturer. With the collapse of communism and the opening of the Polish market, income levels in Poland have started to rise and so has chocolate consumption. Once a scarce item, the market grew by 8 percent a year, throughout the 1990s. To take advantage of this opportunity, Nestlé has pursued a strategy of evolution, rather than revolution. It has kept the top management of the company staffed with locals – as it does in most of its operations around the world – and carefully adjusted Goplana’s product line to better match local opportunities. At the same time, it has pumped money into Goplana’s marketing, which has enabled the unit to gain share from several other chocolate makers in the country. Still, competition in the market is intense.

Eight companies, including several foreign-owned enterprises, such as the market leader, Wedel, which is owned by PepsiCo , are vying for market share, and this has depressed prices and profit margins, despite the healthy volume growth. Discussions: Does it make sense for Nestle to focus its growth efforts on emerging markets? Why? What is the company’s strategy with regard to business development in emerging markets? Does this strategy make sense? From an organizational perspective, what is required for this strategy to work effectively? Through your own research on NESTLE, identify appropriate performance indicators. Once you have gathered relevant data on these, undertake a performance analysis of the company over the last five years. What does the analysis tell you about the success or otherwise of the strategy adopted by the company? How would you describe Nestle’s strategic posture at the corporate level; is it pursuing a global strategy, a multidomestic strategy an international strategy or a transnational strategy? Does this overall strategic posture make sense given the markets and countries that Nestle participates in? Why? Is Nestle’s management structure and philosophy aligned with its overall strategic posture?

World's biggest food and beverage companies - Rediff.com Business Rediff.com » Business » World's biggest food and beverage companies World's biggest food and beverage companies Last updated on: April 16, 2012 14:56 IST World's biggest food and beverage companies There are some food and beverage companies that have more money than some countries of the world. Let's take a look at some of the biggest food and beverage companies in the world. Click NEXT to read more... Image: Shoppers inside the Carrefour Planet in Lyon, France. Photographs: Emmanuel Foudrot/Reuters Nestle Global rank: 1 Nestle is the world's largest food and nutrition company. Founded and headquartered in Vevey, Switzerland, Nestle originated in a 1905 merger of the Anglo-Swiss Milk Company, established in 1867 by brothers George Page and Charles Page, and Farine Lactee Henri Nestle, founded in 1866 by Henri Nestle. Click NEXT to read more... Image: Bottles of baby food are seen in the company supermarket at the Nestle headquarters in Vevey, Switzerland.

Photographs: Denis Balibouse/Reuters PepsiCo Global rank: 2 PepsiCo is an American multinational corporation headquartered in Purchase, New York, United States, with interests in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products. Click NEXT to read more... Image: Bottles of Pepsi on display in New York. Photographs: Mike Segar/Reuters Kraft Global rank: 3 Kraft Foods is an American multinational confectionery, food and beverage conglomerate. It markets many brands in more than 170 countries. Twelve of its brands annually earn more than $1 billion worldwide: Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oscar Mayer, Philadelphia, Trident and Tang. Forty of its brands are at least a century old. Click NEXT to read more... Image: Kraft Macaroni and Cheese is displayed at the company's headquarters in Northfield, Illinois, US. Photographs: John Gress/Reuters Anheuser-Busch Companies is an American brewing company and a wholly owned subsidiary of Anheuser-Busch InBev. The company operates 12 breweries in the United States and 18 in other countries. Click NEXT to read more...

Image: A man walks past a logo at the headquarters of Anheuser-Busch InBev in St Louis, Missouri, US. Photographs: Sebastien Pirlet/Reuters Coca-Cola Global rank: 5 The Coca-Cola Company is an American multinational beverage corporation and manufacturer, retailer and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its flagship product Coca-Cola, invented in 1886 by pharmacist John Stith Pemberton in Columbus, Georgia. Click NEXT to read more... Image: Cases of Coca-Cola in a warehouse at the Swire Coca-Cola facility in Draper, Utah, US. Photographs: George Frey/Reuters JBS Global rank: 6 JBS is the largest Brazilian multinational in the food industry, producing fresh, chilled, and processed beef, chicken and pork, and also selling by-products from the processing of these meats. It is headquartered in Sao Paulo. It was founded in 1953 in Anapolis, Goias. Click NEXT to read more... Image: Beef cattle feed on the Wulf farm in Morris, Minnesota.

Photographs: Diane Bartz/Reuters Global rank: 7 Archer Daniels Midland Company is an American global food processing corporation headquartered in Decatur, Illinois. ADM operates more than 270 plants worldwide, where cereal grains and oilseeds are processed into products used in food, beverage, nutraceutical, industrial and animal feed markets worldwide. Click NEXT to read more... Image: Dan Lizee, operation manager, picks up a handful of wheat at the Alliance Grain Terminal in Vancouver. Photographs: Ben Nelms/Reuters Unilever Global rank: 8 Unilever is a British-Dutch multinational consumer goods company. Its products include foods, beverages, cleaning agents and personal care products. It is the world's largest maker of ice cream. Click NEXT to read more... Image: A worker scans barcodes by a chiller cabinet of Flora margarine at a Sainsbury's supermarket in London. Photographs: Luke MacGregor/Reuters Mars Global rank: 9 Mars is an American manufacturer of confectionery, pet food, and other food products with $30 billion in annual sales in 2010, and is ranked as the fifth-largest privately held company in the United States by Forbes.

Click NEXT to read more... Image: Packets of M&M's chocolates are seen at the production line of candy and chocolate maker Mars Chocolate France's plant in Haguenau. Photographs: Vincent Kessler/Reuters Tyson Foods Global rank: 10 Tyson Foods is a American multinational corporation based in Springdale, Arkansas, that operates in the food industry. The company is the world's second-largest processor and marketer of chicken, beef, and pork only behind Brazilian JBS, and annually exports the largest percentage of beef out of the United States. Click NEXT to read more... Image: Women buy eggs in a supermarket in Bucharest. Photographs: Bogdan Cristel/Reuters SABMiller Global rank: 11 SABMiller is a global brewing and bottling company headquartered in London, United Kingdom. It is the world's second-largest brewing company measured by revenues (after Anheuser-Busch InBev) and is also a major bottler of Coca-Cola. Click NEXT to read more... Image: Barmaid pours a glass of beer in Sydney. Photographs: Tim Wimborne/Reuters Cargill Global rank: 12 Cargill is an American privately held, multinational corporation based in Minnetonka, Minnesota.

Founded in 1865, it is now the largest privately held corporation in the United States in terms of revenue. If it were a public company, it would rank, as of 2011, number 13 on the Fortune 500, behind AT&T and ahead of JP Morgan Chase. Click NEXT to read more... Image: A man gathers bags of cocoa beans at the Cargill factory in Ivory Coast. Photographs: Luc Gnago/Reuters Complications of Nestle being a Global Multinational company Complications of Nestle being a Global Multinational company Published: Last Edited: 23rd March, 2015 This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. Brief of company: Nestlé with headquarters in Vevey, Switzerland was founded in 1866 by Henri Nestlé and is today the world's leading nutrition, health and wellness company. Its sales for 2009 were $ 112.3 billion, with a net profit of $ 11.1 billion.

They employ around 276,050 people and have factories or operations in almost every country in the world. Reasons for selecting the company: Nestlé can trace back its origins to 1867, from selling milk-based baby foods and condensed milk as its primary products to a market leader in today's Food & Beverage Industry with more than 6000 brands under its belt ranging from coffee and candy to hotdogs and pasta. Instead of just reaping the profits from the market, Nestlé has given back to the community by adopting social responsibilities, showing above the bar ethical behaviour and in many cases raising the standards in the industry. Its founding ethos reflects the basic ideas of fairness, honesty, and a general concern for people. Main strategic issues facing the company: Nestlé has been facing 'Nestlé boycott' since 1977 due to its promotions of the use of artificial infant foods. Growing resistance of consumers against the use of genetically engineered foods in Nestlé's products. Increasing competition. Increasing awareness in the consumers with the demand of being socially and ethically responsible increasing day by day. Increasing control and regulations in the policies of the governments worldwide.

Company's contribution to the National Economy: Switzerland's GDP for the year 2009 was estimated at $522.4 billion with GDP growth rate of 2.8% (2010 estimate). Out of which Merchandise exports for 2009 were of $173 billion. *Company's contribution to the regional economy: Nestlé employs around 280,000 people all over the world and have factories or operations in almost every country in the world. Nestlé's gross revenue for the year 2009 was $ 112.3 billion and R&D investment was $ 2.11 billion.Â *Recent strategic dilemma: Environmental impact of palm oil and the role of multi-nationals such as Nestlé in this. Recent strategic choice: In March 2010, Nestlé purchased Kraft's North American frozen pizza business for $3.7 billion. Nestlé has been heavily investing in Africa.

Source of Information on Company: (334 words) Executive Summary This assignment analyzes Nestlé's current situation and strategies in context of Global Food & Beverage Industry and then recommends the key strategies Nestlé should use to be more successful and retain its status as the global market leader in future. To analyze the F&B Industry on a higher level and examine Nestlé's external environment, the following business models are used in this assignment: Industry Life Cycle, Key Success Factors and Porter's Five Forces. And to analyze Nestlé's current status and its internal environment the business models used are: SWOT analysis, Strategic Factor Analysis, TOWS Matrix. After analyzing the information based on the above mentioned models, Nestlé is currently facing issues like product recalls, stagnant growth, high logistical costs, negative publicity and false allegations which are damaging its image and goodwill in the market. To combat some of these issues Nestlé has introduced innovative and healthier food products to cater the rising number of health conscious consumers, started focusing on the rising middle class consumers in developing and emerging economies, which has helped Nestlé to increase their growth again post the 2009 Financial Crisis.

For further improvement in the market share and company image, key strategies recommended to Nestlé are Expansion strategy through strategically acquiring and merging with its competitors and investing in production facilities in developing economies and Growth through Innovation in health & nutrition food segment. One area that Nestlé has to care of immediately is improvement in its Public Relations management to create a high level of loyalty and trust in its customers by building and reinforcing the notion that Nestlé still follows its founding ethos of fairness, honesty, and a general concern for people. (277 words) Y SALES The Global Food, Beverage and Tobacco Industry's growth has slowed down in recent years. But all this is set to change due to the recent technological advancements, rapid globalisation and opening up of the many restricted markets worldwide such as India, China, African nations, etc. With the technological advancements in food processing, handling and storing capacity and the rapid emergence of organized retailing in Asia, Africa, and other third world countries, along with fast changing demographics and habits has changed consumption the patterns and is fuelling the next growth trajectory for the global food, beverage and tobacco industry. The Global Food, Beverage and Tobacco Industry is in the High Growth stage of the growth phase as the increase in sales has slowed down in recent years.

The global food, beverage & tobacco industry generated total revenues of $6,319.2 billion in 2009, growing at a compound annual growth rate (CAGR) of 3.4% for the period spanning 2005-2009. Food sales generated total revenues of $4,235.4 billion, equivalent to 67.1% of the industry's overall value and sale of beverages generated revenues of $1,581.7 billion in 2009, equating to 25% of the industry's aggregate revenues. The industry is forecasted to grow at CAGR of 3.8% for the five year period 2009-2014. Nestlé recorded revenues of $99 billion in year ending December 2009, showing decrease of 2.1% compared to fiscal 2008. In 2009, Nestlé renovated 7,252 products for nutrition or health reasons, as health awareness among consumers is rapidly increasing and it wants capitalize on the health conscious trend.

Nestlé has been active in Developing &Emerging (D&E) economies through its subsidiaries in Asia Pacific, Africa, the Middle East, Turkey and Latin America. Nestlé's sales in emerging countries accounted for almost 32.5% of total revenue and reached $32.32 billion in 2009. According to IMF, the advanced economies are set to grow at 2.1% and 2.4%, respectively, in 2010 and 2011, while the D&E economies are forecasted to grow at 6% and 6.3% in 2010 and 2011, respectively. Therefore in the future, Nestlé's growth will be driven by high-growth D&E economies. Key Factors for Success 4.37 Key Factors for Success in the Food and Beverage Industry: Branding in F&B industry is of utmost importance as people do not prefer to buy products that they are not familiar with; also in this industry brand image is everything as it can attract consumers to a company's new products if it is already reputable in the market.

Diversification in F&B industry are almost always related as companies prefer to have a healthy portfolio of products while still maintaining their core competencies and using them in their related products; as by having a large range of products a company will be more competitive and would not have to rely on a single product. Product quality is very important in F&B industry, as bad quality products can & will lead to consumer boycott of the company's products, health issues in consumers and lawsuits against the company. While quality of the products also have to justify their prices, such as normal milk chocolates (Nestlé, Cadbury, etc.) cannot be priced high while specialty chocolates (Lindt, Godiva, etc.) are high priced. A strong distribution network is a must in F&B industry as it gives the companies low costs operations, fast delivery, and optimal shelf presence in retail stores. R&D is vital for gaining market share for the companies as development of better tasting, more nutritional and new foods & beverages is the fastest way of capitalizing on the fast changing trends of the consumers (like current healthy & organic food trend). Two of the many competitors that Nestlé has, I have chosen Kraft Foods and Unilever for the comparison of KFS.

After analyzing the KFS it is clear that Nestlé's response to the current and expected key success factors is above the industry average, with Unilever quite close behind and Kraft Foods just managing the industry average. So the analysis of KFS also reinforces Nestlé's position as the largest F&B Company in the world. Porter's Five Forces Model: Analysis of Porter's Five Forces: The Bargaining Power of Suppliers (Low): The bargaining power of suppliers in F&B Industry low as the raw materials for this industry includes fruits and vegetables, meat and fish, dairy products and grains, tobacco, cereals and grains, etc which could be purchased in the open markets around the world. And some F&B producers have integrated backwards into producing their own raw materials, negating the need for suppliers. Also suppliers tend to be financially quite weak giving market players upper hand. The Bargaining Power of Buyers (High): The bargaining power of suppliers on the other hand is quite high as typical buyers are large retailers such as Wal-Mart, Carrefour, etc. who are financially very strong and usually make large purchases and enter into long term contracts with market players; as the profit margins for the buyers is quite low.

So loss of one retailer could significantly impact upon a manufacturer's revenue. Buyers are frequently integrating backwards, with many retail chains offering their own branded packaged food goods usually referred to as Private label products. The Threat of Potential New Entrants (Present): The threat of new entrants is high for small players who only serve few products and few markets (regional or national players) but is low for highly diversified big market players such as Nestlé, Unilever, etc. who operate globally. Since it's a highly fragmented market small-scale entrance by occupying a niche in the industry is possible and high these days. But new entrants have to bear switching costs (which can be quite high) as it's very hard to convince consumers to try new brands/products. Also big players can restrict the access to distribution channels for new players through their contacts and power in the market. The Threat of Substitutes (High): The substitutes are often cheaper and just as popular with consumers in F&B Industry as most of the products in this industry are in a way a substitute of some other products, like Tea for Coffee, Coke for Pepsi, NutraSweet for Sugar, etc. These days private label products, organic foods; nutritional foods, etc.

are also rapidly substituting the packaged foods. And there are almost no switching costs for end consumers as they just pick any new products instead of their regular ones if they want to experiment. The Extent of Competitive Rivalry (High): The competitive rivalry among the firms is quite high in this industry as the enormous size of the industry creates endless opportunities for the players to compete for. Large number of players, ready availability of substitutes, low entry barriers, low bargaining power of suppliers and fast changing customer tastes intensifies rivalry in the F&B Industry. And also slow down of sales in the industry in 2009 will intensify the competition in the market, as everyone would try and gain market share now by take sales away from other competitors. Introduction: Nestlé Was Founded in 1866 by Henri Nestlé And | Nestlé | Milk Introduction: Nestlé Was Founded in 1866 by Henri Nestlé And Introduction: - Nestlé was founded in 1866 by Henri Nestlé and is today theworld's biggest food and beverage company. Sales at the end of 2005 were CHF 91 bn, with a net profit of CHF 8 bn.

Nestléemploy around 250,000 people from more than 70 countries andhave factories or operations in almost every country in the world.The history of Nestlé began in Switzerland in 1867 when Henri Nestlé, the pharmacist,launched his product Farine Lactée Nestlé, a nutritious gruel for children. Henri used hissurname, which means ’little nest’, in both the company name and the logotype. The nest,which symbolizes security, family and nourishment, still plays a central role in Nestlé’s profile.Since it began over 130 years ago, Nestlé’s success with product innovations and business acquisitions has turned it into the largest Food Company in the world. As theyears have passed, the Nestlé family has grown to include chocolates, soups, coffee,cereals, frozen products, yoghurts, mineral water and other food products.

Beginning inthe 70s, Nestlé has continued to expand its product portfolio to include pet foods, pharmaceutical products and cosmetics too.Today, Nestlé markets a great number of products, all with one thing in common: thehigh quality for which Nestlé has become renowned throughout the worldThe Company's strategy is guided by several fundamental principles. Nestlé's existing products grow through innovation and renovation while maintaining a balance ingeographic activities and product lines. Long-term potential is never sacrificed for short-term performance. The Company's priority is to bring the best and most relevant productsto people, wherever they are, whatever their needs, throughout their lives.Taste of Nestlé in each of the countries where Nestlé sell products. Nestlé is based on the principle of decentralization, which means each country is responsible for the efficientrunning of its business - including the recruitment of its staff.1 That's not to say that every operating company can do as it wishes. Headquarters inVevey sets the overall strategy and ensures that it is carried out. It's an approach that is best summed up as: 'centralize what you must, decentralize what you can'.

Nestlé is a company which is present in all over the world but It has difference andunique motto to deal in all over the world. Nestlé believes that they should think abouttheir organizations globally but they deal with people by interacting with them locally. “Thinking globally - acting locally”Evolution of Nestlé: - 1867 Multinational Corporations Multinational Corporations Definition of MNC Multinational firms arise because capital is much more mobile than labor. Since cheap labor and raw material inputs are located in other countries, multinational firms establish subsidiaries there. They are often criticized as being runaway corporations. Economists are not in agreement as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.) The following is an excerpt from Franklin Root, International Trade and Investment Ownership criterion Some argue that ownership is a key criterion. A firm becomes multinational only when the headquarter or parent company is effectively owned by nationals of two or more countries. For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational.

The ownership of most MNCs are uninational. (e.g., the Smith-Corona versus Brothers case) Depending on the production process, each is considered an American multinational company in one case, and each is considered a foreign multinational in another. Thus, ownership does not really matter. Nationality mix of headquarters managers An international company is multinational if the managers of the parent company are nationals of several countries. Usually, managers of the headquarters (e.g., GM, Toyota) are nationals of the home country. This may be a transitional phenomenon. Very few companies pass this test currently. Business Strategy some are home country oriented, others are host country oriented. Successful firms: Starkbuck shop in Qian Men street, Beijing According to Franklin Root (1994), an MNC is a parent company that (i) engages in foreign production through its affiliates located in several countries, (ii) exercises direct control over the policies of its affiliates, and (iii) implements transnational business strategies in production, marketing, finance and staffing in a way that transcend national boundaries. In other words, MNCs exhibit no loyalty to the country in which they are incorporated.

Example has plants and offices in Greece, France, Germany, Norway, Russia, Sweden, Turkey, US, and Mexico. Wheat is purchased from around the world. Reference Howard V. Perlmutter, "The Tortuous Evolution of the Multinational Corporation," Columbia Journal of World Business, 1969, pp. 9-18. 2. Three Stages of Evolution Export Stage (i) initial inquiries ⇒ result in first export. (ii) Initially, firms rely on export agents. ⇒ expansion of export sales (iii) ⇒ foreign sales branch or assembly operations are established (to save transportation costs) Foreign production stage (i) There is a limit to foreign exports, due to tariffs, quotas and transportation costs. (ii) Wage rates may be lower in LDCs. (iii) Environmental regulations may be lax in LDCs (e.g., China). Itai-Itai (meaning: ouch ouch) disease in Japan since the 1920s was caused by cadmium poisoning. Contaminated effluents leaked into rice paddies and water source.) Watch the movie, Erin Brochovich.

(iv) meet Consumer demands in the foreign countries DFI versus Licensing Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm. Licensing Licensing is usually the first experience (because it is easy) e.g.: Kentucky Fried Chicken in the U.K. Licensing does not require any capital expenditure Financial risk is zero. royalty payment = a fixed % of sales licensor may provide training, equipment, etc. Problem: the parent firm cannot exercise any managerial control over the licensee (it is independent) The licensee may transfer industrial secrets to other independent firms, thereby creating rivals. In order to deter entry of copycat producers, MacDonalds may supply American ingredients or raw materials (e.g., beef) Direct Investment It requires the decision of top management because it is a critical step. (i) it is risky (lack of information, large capital requirement) US firms tend to establish subsidiaries in Canada first. Singer Manufacturing Company established its foreign plants in Scotland and Australia in the 1850s. (ii) plants are established in several countries (iii) licensing is switched from independent producers to its subsidiaries.

(iv) export continues (exports and FDI may be substitues or complements) Multinational Stage The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location. A lion's share of MNCs are headquartered in the US: Wall-Mart How to tell whether a firm is multinational? Rule of Thumb A company whose foreign sales are 25% or more of total sales. This ratio is high for small countries, but low for large countries, e.g. Nestle (98%: Dutch), Phillips (94%: Swiss). Examples: Manufacturing MNCs 24 of top fifty firms are located in the U.S. 9 in Japan (shrinking) Petroleum companies: 6/10 located in the U.S. Food/Restaurant Chains. 10/10 are headquartered in the U.S. US Multinational Corporations: Exxon, GM, Ford, etc. 3.

Motives for Foreign Direct Investment (FDI) Anecdote on Sunzi , who wrote "The Art of War." Sunzi (544-496 BC) was a native of Ch'i, but served under King of Wu during the Spring and Autumn period (771-476 BC). New MNCs do not pop up randomly in foreign nations. They are the product of conscious planning by corporate managers. Investment flows from regions of low profits to those of high returns. 1 Growth motive A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets. 2 Bypass protection in importing countries Foreign direct investment is one way to expand. FDI is a means to bypassing protective instruments in the importing country. Examples: (i) European Union: imposed common external tariff against outsiders. US companies circumvented these barriers by setting up subsidiaries . JBS USA is a subsidiary of a Brazilian company, the world's largest meat processor of beef and pork. (It kills 5000 head of cattle per day.) (ii) Japanese corporations built auto assembly plants in the US, to bypass VERs. 3.

avoid high corporate tax US corporate tax = 39.6%, Greece = 29%, France = 33%. Corporate tax rates are lower in most other countries. 4 avoid high transport costs Build factories where consumers are. Transportation costs are like tariffs in that they are barriers which raise consumer prices. When transportation costs are high, multinational firms want to build production plants close to either the input source or to the market in order to save transportation costs. Multinational firms (e.g. Toyota) are better off establishing factories where consumers are located than shipping goods to faraway counries. 5 avoid Exchange Rate fluctuations Japanese firms (e.g., Komatsu) invest here to produce heavy construction machines to avoid excessive exchange rate fluctuations. Also, Japanese automobile firms have plants to produce automobile parts. For instance, Toyota imports engines and transmissions from Japanese plants, and produce the rest in the U.S. Toyota is behind GM and Volkswagen in China, and plans to expand its production in China (in addition to Tianjin and Guangzhou) and has no plans to build more plants in North America. (China's autoparts are cheaper.) It may have been a mistake for Toyota to overexpand its plants in the US.

GM and Volkswagen have expanded their production plants in Shanghai. A Komatsu machine used in ethanol production in Ida Grove, Iowa. 6 reduce competition The most certain method of preventing actual or potential competition is to acquire foreign businesses. GM purchased Monarch (GM Canada) and Opel (GM Germany). It did not buy Toyota, Datsun (Nissan) and Volkswagen. Subsequently, they became competitors. Toyota is #1 in the car industry at present. Market shares of car companies are: Toyota: 12%, GM = Volkswagen: 11%, Hyundai-Kia: 9%. World = 90 million cars. China = 24 million, US =12 million. 7 secure essential inputs Transfer prices are the prices paid for imports/exports between the headquarters and subsidiaries. Why manipulate TP? MNCs manipulate prices between the headquarter and the subsidiaries so as to realize more profits in that profits may be the highest in the countries with lower tax rates. Purpose: to minimize the total tax a multinational firm pays. MNCs try to reduce their overall tax burden. An MNC reports most of its profits in a low-tax country, even though the actual profits are earned in a high tax country.

Example tp = tax rate in the parent country th = tax rate in the host country If tp > th, then lower export prices to the subsidiary in the host country, and raise import prices from the subsidiary. => lower tax. MNC's Goal: maximize profit in the country with the lowest tax rate. In High tax countries: To reduce MNC profits: (i) lower selling price, and (ii) raise buying prices In Low Tax countries, do the opposite Total tax = $135 ($7000 × 15%) Thus, a multinational company's overall tax could be paid at the lowest tax rate of all countries in which it operates. Abuses in pricing across national borders are illegal (if they can be proved). MNCs are required to set prices at "arms length" (set prices as if they are unrelated). IRS argued that Toyota Inc. of Japan had systematically overcharged its US subsidiary for years on most of trucks, automobiles and parts sold to the US. Because of abuses in transfer pricing, taxable profits were shifted to Japan. The settlement Toyota offered to IRS reportedly approached $1 billion.

Question: Where is the multinational Nestle based?
Answer: Switzerland